Self-Employment Taxes, the Dummies Version

IRS schedule SE

You would think that someone who picks up few bucks here and there as a freelancer would have become pretty familiar with the process of calculating and filing self-employment taxes. You'd think that someone who claims to be a "a writer... specializing in personal finance and business topics" would have an especially good handle on the topic. That's why we were taken aback by the sloppy job Michael Kennan (aka Mark Keenan) did in his PocketSense article "How to Figure Self-Employment Taxes."¹

Kennan (we'll forgo the "Keenan" for now) blew it right up front when he gravely intoned in his introduction that,

"The Internal Revenue Service imposes an additional tax on self-employment income. Most people pay the Social Security tax and Medicare tax by income withholding through their employer. However, self-employed individuals have no employer so they must calculate these taxes on their own."

While that is partially correct, the point that Mark / Michael should have made – or at least mentioned – is that employers pay half of your Social Security and Medicare taxes, but a self-employed person has to pay all of them. But he never mentioned that...
Kennan walked his readers through the concepts of using Schedule C to determine net income and then using Schedule SE to calculate self-employment taxes. He then screwed the pooch with his next step:

"Compare your income subject to the self-employment tax from step 2 to the annual limit for the Social Security tax... If the total exceeds the annual limit, multiply your total income by the Medicare tax rate and add the maximum Social Security tax to calculate your total self-employment tax."

No, you blithering idiot, you compare your total earned income from all sources – including full and/or part-time employment – to the maximum. Taxpayers are only required to pay a certain dollar amount to Social Security (it changes from year to year), and it is possible to reach (or approach) this limit before calculating self-employment taxes. To be blunt, then, Kennan's "instruction" is just plain bull.

Here's a guy who claims to be a "specialist in personal finance" and he can't even get self-employment taxes right? Even though he probably filled out Schedule SE every year he wrote for eHow? Now that's a dumbass... a Dumbass of the Day!

¹ The original has been deleted by Leaf Group, but can still be accessed using the Wayback machine at archive.org. Its URL was   ehow.com/how_6796354_figure-self-employment-taxes.html

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SE - TAXES